News

01

Mar 2017

The Five Shades of Decline

In my articles, I like to educate and hopefully provide some hints to help individuals and businesses avoid the pitfalls of potential business failures.

I, of course, make my money from advising business owners on how to avoid encountering people such as myself in an official capacity as Liquidator or Administrator, as well as acting for individuals and businesses facing the harsh realities of insolvency.

You may have in the past heard the adages “too big to fail” or “too small to succeed” – which when applied to business, do not actually mean much. No business is necessarily too big to fail and small businesses if run well have every chance to succeed. The question you may ask yourself then is why do businesses in such categories fail?

Rather than quote business statistics and management theory, I am going to write from the heart… yes even an insolvency practitioner has a heart!

Let me introduce you to why, holistically, a business may decline.

In my opinion there are 5 stages which are:

Stage 1 Hubris

Stage 2 Uncontrolled Growth

Stage 3 Denial of Risk and Peril

Stage 4 Snake Oil Salesmen

Stage 5 The Final Curtain

Stage 1Believing they alone have the secret to success

In Greek tragedy, excessive pride towards or defiance of the Gods, led to the Gods bringing the offenders crashing down to earth with an almighty bump!

This is hubris and in a business sense it is where Business owners attribute their success to their own superior qualities and ignore business fundamentals. Their approach becomes bogged down in dogma and they fail to question their relevance when structural or market conditions change. Think of BHS.

Stage 2Uncontrolled Growth

The business overreaches itself. Examples include moving into industries or growing to a scale where the factors or rationale behind their original business success no longer apply. This also applies to overtrading, where for instance a company engages in more business than can be supported by the market or by the resources available to it. In such instances, it is a matter of discipline. Freewheeling entrepreneurship can sometimes get out of hand and lead to a lack of control which can in turn escalate in to real problems.

Stage 3Denial of risk and peril

When warning signs accumulate, they are ignored in circumstances where the business’s performance indicators remain strong enough for business owners to convince themselves that all is in fact ok. External factors are often blamed rather than looking internally for the root cause of the problems. For example, think of the banking crisis, where subprime mortgages for years sat on the banks’ balance sheets and were portrayed as ‘good’ assets until they realised (or were told) that they were illusory. A sound SWOT analysis would’ve certainly helped in such circumstances.

Stage 4Snake oil salesmen

At some stage, the business problems become transparent enough for business owners to start reaching out to someone to save them from the predicament they find themselves in. Essentially, they are looking for a “silver bullet”. In fact, what tends to happen is that salvation is sought but rather than return to the fundamentals that made them successful, they sometimes gamble on the charismatic saviour, where under their guidance, they dramatically change strategy, making transformational change in the hope of a cure. The longer a business remains at this stage, the more likely it will spiral downward to the final stage.

Stage 5The final curtain

Negligible assets, no viable trade, no value…irrelevance or death.

The Good NewsHow can PCR help

Any stage up to but not necessarily including stage 4. We have at our disposal legislations ensuring rescues and the restructuring of businesses, including debt. We actively root out the actual causes and provide an options review with recommendations. Honest and straightforward advice delivered in plain English.

The nearer to Stage 5 a business has reached, the more likely irrelevance and death will occur…no matter what is tried. Get it wrong and a huge amount of grief falls on the heads of business owners.